Beebe: Income tax opponents need $2 billion replacement

LITTLE ROCK — Politicians bent on eliminating the state income tax should offer a $2 billion replacement for a key element of Arkansas’ tax structure, Gov. Mike Beebe said Monday.

Republican lawmakers are considering options for restructuring the income tax code, and the state Republican Party platform calls for eliminating the income tax, which brings in about $2.9 billion in state revenue, "with a more equitable method of taxation."

"I don’t think there is more equitable," Beebe said during an interview with Arkansas News Bureau business columnist Roby Brock. "The income tax was designed to be more equitable than a flat, for example, sales tax."

Beebe said his top tax reduction priority remains eliminating the state sales tax on groceries, which has been reduced from 6 percent to 1.5 percent since he took office in 2007.

"If you’re going to eliminate the income tax, you better figure out where you’re going to get a couple billion just to stay where we are," Beebe said. "All this political rhetoric, whether it’s the Republican platform or anybody else just running around out there talking about tax cuts — they talk about it, I’ve done it," Beebe said.

"I think I’ve done more to reduce the tax burden of the people of Arkansas than any Republican or Democrat … in history, so I think I’ve got some credibility to talk about tax cuts," he said.

Food tax cuts and others during Beebe’s tenure total more than $1.2 billion, compared to about $530 million in tax increases, primarily from raising the tobacco tax and the severance tax on natural gas, for a net tax cut of $730 million, according to estimates from the state fiscal office. The key to cutting taxes, Beebe said, is to do it responsibly to make sure cuts don’t come so fast or so deep to affect essential services — education, prisons and human services.

Beebe was asked if he could embrace other income tax options being considered, such as reorganizing income tax brackets as envisioned by some House Republicans, including Rep. Davy Carter, R-Cabot, who is chairing a legislative committee’s review of state tax exemptions with an eye on income tax reform. The governor called Carter an "intelligent, thoughtful, responsible, pragmatic" lawmaker who would do an objective analysis of the existing tax structure and how it could better serve both taxpayers and the state budget.

"I’m open-minded and I’ll always sit down with Davy and talk about those things," he said, though he added, "that’s not carte blanche" and "let’s don’t be hypothetical about what those specifics are."

Carter said the governor has always been respectful and listened to his proposals.

"I’m not ready to have that discussion with him yet. I haven’t narrowed any proposal that I may have down yet," he said. "I appreciate what he said and look forward to having that conversation when him when the time comes."

Carter did say he doubted that eliminating the income tax over the next few years is feasible. Doing so over eight to 10 years under a plan "to gradually make changes that the legislative body and the governor see fit to make over time is the proper approach. Some of the inequities that are present today with the current brackets need to be addressed first," he said.

Also Monday, Beebe indicated he is still inclined to pursue expanding the state Medicaid program to provide medical coverage for up to 250,000 Arkansans, but said he needed assurances that the state would maintain the flexibility to opt out in three years when the federal government goes from picking up the entire tab to covering 90 percent of the expense.

"Ninety to 10 is still a good deal, but we still need to have the flexibility to be able to say if we can’t afford it, we just can’t afford it," he said. "I’m still awaiting the official word on that. The preliminary word is that apparently states are going to have the flexibility."

Beebe also said he would be open to possibly phasing in coverage or other options, but he acknowledged that any Medicaid expansion will be unlikely without the support of Republicans.

GOP legislative leaders have urged Beebe to wait on expanding the program and instead look at reforms, such as at tightening eligibility restrictions. State officials are currently developing reforms that would change the way health care providers are reimbursed for care, but Republican legislators have said they want Beebe to consider other approaches.